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IMF bullish on Australian economy but warns o -

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IMF bullish on Australian economy but warns of rates rise

Reporter: Dana Robertson

News of a 30 year low for unemployment figures has raised concerns that interest rates will rise


TONY JONES: Well, there was bittersweet economic news today for the Federal Government.
Unemployment again fell to a 30-year low with the March figure coming in at just over 4.5 per cent.
What might have in the past been unquestionably good news nowadays prompts more speculation about
more pain for mortgage holders. The threat of higher interest rates coincides with new warnings
from the IMF, the International Monetary Fund, that Australia's inflation rate is nearing the point
where monetary policy may have to be tightened. Dana Robertson reports.

DANA ROBERTSON, REPORTER: The Prime Minister was all smiles as he emerged with the latest economic
good news. In March, unemployment dipped again back to a 30-year low of 4.5 per cent. Nearly 32,000
people entered the full-time workforce and John Howard wasn't shy about claiming the credit.

JOHN HOWARD, PRIME MINISTER: There's no greater human dividend from good economic management than
to give people a job.

DANA ROBERTSON: Until now, Mr Howard says it's been too early to attribute the downward
unemployment trend to the new industrial relations laws. But he says after 12 months the
WorkChoices verdict is in.

JOHN HOWARD: It is reasonable to assert that one of the contributions made to this spectacular
growth in employment has been the removal of the unfair dismissal provisions under WorkChoices.

KEVIN RUDD, LEADER OF THE OPPOSITION: Pigs might fly, I think is the response.

DANA ROBERTSON: Kevin Rudd says there's quite another reason for the record low jobless figures,
pointing to what he calls a once in a generation mining boom.

KEVIN RUDD: If you look at where most of the employment growth is occurring, it is occurring in the
resource-rich states. The challenge for Australian working families is this, what happens when the
mining boom is over? Everyone knows it's going to end one day.

DANA ROBERTSON: But even the almost unprecedented jobless rate has a sting in the tail for the
Government. These days any drop in unemployment inevitably prompts questions about the flow-on
effect on interest rates. But the Prime Minister won't admit to being bothered.

JOHN HOWARD: I never admit to frustration. I never admit to frustration.

DANA ROBERTSON: For now, analysts don't perceive enough immediate pressure on inflation for the
Reserve Bank to lift rates. But that another rise might not be far away.

MICHAEL BLYTHE, COMMONWEALTH BANK: Tightening labour markets is the sort of thing that underlines
those risks and potentially will see interest rates move higher this year. I don't think we're
quite there yet, but certainly today's numbers push us further in today's direction.

KEVIN RUDD: For Mr Howard to say, "Wow, that great piece of economic advantage being delivered by
his unfair industrial relations laws," it doesn't stand up to any level of economic scrutiny.

DANA ROBERTSON: The renewed focus on interest rates coincides with the latest half-yearly
assessment from the International Monetary Fund. It's also warning that rates could be on the way
up if inflation doesn't ease soon. The IMF says that inflation is hovering around the very top of
the Reserve Bank's 2 to 3 per cent comfort zone, which could force the central bank's hand. The
drought is also affecting the IMF's thinking, prompting it to downgrade Australia's economic growth
forecast for this year by almost a full percentage point. But it expects growth to rebound next
year to around 3.3 per cent.

(c) 2007 ABC